Competition and Financial Stability: A Comparative Study of the Banking Systems

The work on this project will:

• Review the banking competition policies in the developed countries and emerging markets in the last two decades;
• Review the stability of the financial systems in the mentioned countries;
• Investigate the potential of the banking system to grow and consolidate;
• Analyse the non-linear nature of the relationship between competition and financial stability.
• Quantitative data analysis – econometric modelling 

Project description 

In the light of the importance of the banking system in the modern economy, it is essential to analyse its composition and growth. Hence the competition authorities regulate how a banking system is developing. There are important factors to consider to ensure best practice, such as, the consolidation and expansion practices. In addition, the consumer well-being are closely monitored, and interventions are made to make sure that the disadvantages to all parties involved are minimized. This is especially important in the developed and emerging economies, where the banking systems are enormous, and where small regulations may have huge effects on banks and/or consumers and business.

Various measures of competition are proposed in the literature. The research will review their advantages and disadvantages and compare them using empirical analysis. Furthermore, the multivariate analysis of scale economies and market power will be performed to investigate the potential of the banking industry to consolidate or expand. However, if the data is available then other industries also be considered. Finally, different measures of financial stability of a banking system will be reviewed and empirically estimated.  In this part of the project it will be investigated if the nature between competition and financial stability is nonlinear.